Politics Trumps Reason

The Federal Environment Ministry has just released a report that purports to analyse the impact of Canada adhering to its Kyoto targets.  The report is so clearly politically biased that it is simply not worthy as a discussion document.

The report concludes that to reach Kyoto targets, Canada would have to implement a $195/tonne carbon tax.  The report assumes that this is the only way to achieve domestic reductions, and there is no supporting evidence as to why this is or is not the right price.  Carbon has been trading in Europe at between $10 and $50/tonne.  The $195 price assumption seems to be picked out of thin air, most likely politically motivated to allow the government to claim they can’t achieve Kyoto, and that achieving Kyoto will wreck the economy.  The report is loaded with other politically motivated information.  Why, for example, is it necessary to point out the China and India do not have targets in this Kyoto period (2008-2012)?  After all, it is Canada that agreed to Kyoto, knowing full well that this was the case.  Isn’t it Canada’s goal that should be the issue?  The report talks at length about how it is unlikely measures can be implemented in less than a year.  Why?  The Environment Ministry has produced thousands of pages of study, and spent thousands of hours consulting industry, NGO’s etc.  This is probably the most studied file in history.  Why must we wait to implement?  It couldn’t be politics, could it?
As I am most familiar with the electricity sector, and so will comment on the impact of such a tax there.  Such a tax would increase the cost of coal generated electricity from about 4 cents/kWh to 23 cents.  The cost of natural gas generated power would increase from about 8 cents to 17 or 18 cents/kWh.  Retail prices of electricity would increase by a factor of 2 or more in Alberta, Saskatchewan and Nova Scotia, which are all very dependent on fossil fuels for supply.  Prices would increase by less in Ontario, Newfoundland and New Brunswick, but they would still increase by 60-80%.

It would become enormously profitable to build new low emission generation, like wind, or biogas.  In most parts of Canada, wind is profitable at 9-12 cents/kWh, and even less in very windy places.  Canada would be constructing thousands of Megawatts every year, soon rivalling or exceeding market leaders like Germany or the US.  There is no question we have the wind and the space.  There would be an enormous construction boom in renewable energy.  There would also be an big boom in conservation expenditures, including replacing old chillers and boilers, installation of ground source heat/cooling, replacement of lighting and old refridgerators, installation of motion sensors to shut lights off when nobody is around, additional insulation etc.  Nuclear reactors would be economically more viable, and the chorus of calls to build more would spread beyond Ontario’s provincial Liberals and Conservatives.

As this spending occured, the use of fossil fuels to make electricity would rapidly drop.  Coal would become the generator of last choice, and existing natural gas generators would carry more of the load.  Canada would quickly become a net importer of electricity if the tax was only on domestic production, as it would make no sense to generate using coal or gas in Canada, if we could purchase from the US.  Of course, we would be kidding ourselves if we claimed emissions were reduced by using imports of coal and gas fired electricity.  We would need to tax electricity imports, or this unintended consequence, with no reduction in global emissions would occur.

The bottom line is that $195 per tonne is far in excess of what is needed to curb Canada’s carbon emissions.  And so any conclusions that the report makes are beyond questionable – they are simply wrong.

The release of such a poorly considered report suggests that the Federal Tories are trying to scare the public into opposing Kyoto.  It is an shameful abuse of the science of economics.  It is a shameful abuse of the civil service in the Ministry of the Environment.  And it does nothing but further discredit the actions (or lack thereof) of the Federal Government on climate change.

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